For first time in 30 years, California making almost no investments in affordable housing

(photo credit: Eric Allix Rogers)

Here’s a fact: For the first time since the 1980s—at a critical moment in the economic recovery when rents are soaring, stagnant wages are making it harder to make ends meet, and many of the most expensive housing markets in the country are getting, well, even more expensive—California's government is making almost no investments at all in affordable housing.

Here’s another fact: With the last of the housing projects drawn up before the 2011 elimination of local redevelopment agencies about to reach the end of their five-year plans—and with little chance of resurrecting that particular $1 billion source of annual funding for below-market housing—this situation is likely to get worse before it gets better.

Unless, that is, state leaders can do something about it—and soon.

This is the message the Summit’s Housing Action Team has been sharing over the last several months—with housing advocates distributing fact-sheets that illustrate the urgency of the housing crisis, while also pushing for a range of legislative approaches aimed at plugging this hole in housing funding. For much of the last year, these efforts have been focused on a bill introduced by Sen. Mark DeSaulnier, SB 391, that would create a permanent source of funding for affordable housing by levying a $75 recording fee on real estate documents. In the last week, team members have also welcomed Senate leader Darrell Steinberg’s recent proposal to direct the bulk of the state’s cap-and-trade funds toward transportation and housing. (More details on those approaches can be found below.)

“We’re looking for solutions for what’s really become a perfect storm in housing,” says Ray Pearl, a member of the Housing team who serves as executive director of the California Housing Consortium, a housing advocacy organization representing the development, building, financial, and public sectors.

The gathering storm

This storm began during the lead-up to the recession, when affordable housing wasn’t able to keep pace with the bubble in housing prices. When that bubble popped, local redevelopment agencies, the main source of funding for below-market housing, were raided for funds to close gaps in the state budget. Finally, as the economy began to recover, the program—which required 20 percent of redevelopment funds to be spent on affordable housing, injecting $1 billion a year into the market—was eliminated altogether, a casualty of the 2011 budget battles.

These decisions put two major obstacles between low-income families and affordable homes. “First, it was a billion a year. You can do a lot with that,” says Pearl. “But secondly, the law created a place in government where there was a mandate to provide affordable housing. When we lost those programs, we lost the money and the mandate—a double whammy.”

Bond measures have long been another reliable source of funding for affordable housing, with bond sales raising about $5 billion for housing over the last decade. But those funds are nearly exhausted, and, apart from a $600 million veterans housing bond on the June ballot, borrowing money to encourage below-market housing development doesn’t seem likely anytime soon. Federal government support of housing programs has also been waning.

Demand for housing below today’s ever-climbing prices, meanwhile, has only gone up. Take this story about a recently-completed senior housing development in Long Beach, where the waiting list for the first 200 units reached 1,200 households. Or this one about a San Francisco rental housing development that saw 2,100 applicants vying for 200 apartments. “It’s one of the things we never have to worry about,” says Pearl. “Every business has to deal with supply and demand. Well, the demand portion of our equation is always sky-high.”

Fees on real estate documents: Sen. DeSaulnier’s SB 391 would create a permanent, roughly $500 million-a-year source of funding for affordable housing by levying a $75 recording fee on real estate documents. The bill, currently stalled in the Assembly appropriations committee, requires a 2/3rds vote to pass—an imposing hurdle in the Senate, where two Republicans would need to support it. With one of the bill’s principal coauthors, Asm. Toni Atkins, taking up the gavel as Speaker next month, however, advocates are optimistic about the bill’s chances—but likely not until Democrats regain their supermajority, possibly as soon as next year.

Funding through cap-and-trade: Sen. Steinberg changed the political landscape dramatically last week when he unveiled a new proposal to spend the bulk of California’s cap-and-trade revenues (as much as $5 billion a year) on housing and transit. It’s not yet clear how the governor will respond to this idea, but Steinberg’s approach would fill the hole left behind by redevelopment and the stalled SB 391. Steinberg’s office released a chart showing as much as $1.7 billion a year going to “affordable housing and sustainable communities,” assuming $5 billion in cap-and-trade revenues. Needless to say, housing advocates have cheered this approach—including Ray Pearl, who has called for the proposal to be “the starting point for a comprehensive statewide funding strategy” for affordable housing.

Options in the state budget: Several proposals in the governor’s January budget may also continue to be part of negotiations this year. These include a $100 million grant program for implementing sustainable communities strategies—a program housing agency staff say would bring state agencies including Caltrans and the Department of Housing and Community Development together to explore sustainable, affordable housing options. (That program, too, would be funded using cap-and-trade revenue.) The Summit has also been working with the administration to strengthen a budget proposal that would provide local governments with a small-scale replacement for redevelopment. The governor has proposed expanding the powers of an existing local investment mechanism, Infrastructure Financing Districts, to allow local governments to invest in infrastructure and affordable housing. With housing advocates concerned by the limited scope of this new authority, the Summit has outlined several ways to nearly double the proposal in size.